In my previous article, I mocked the “India is not AI or India is now reverse AI” narrative that was being built up in the market commentary. I made a simple point that India has seen many such ‘mood swings’. These mood swings, themes and memes may have an impact on near-term expectations and outcomes. They are hence to be seen as tactical in nature.
India investing is however a strategic long-term allocation. And I made the point that the India investing story is a simple story.
The ‘simple story’ of India investing
It is a story of 6-7% real GDP growth which results in double-digit nominal GDP growth, which is reflected in stock market returns
| % CAGR | 5 Years | 10 Years | 15 Years | 20 Years |
| Real GDP | 7.8 | 5.8 | 6.4 | 6.9 |
| Nominal GDP | 12.5 | 9.8 | 11.2 | 12.3 |
| BSE-30 Sensex Total Returns | 17.4 | 13.2 | 11.1 | 13.3 |
| BSE-500 Index Total Returns | 20.4 | 14.3 | 11.9 | 13.6 |
The table above is a beautiful reflection of that simple story of steady, consistent real and nominal GDP growth and its reflection in market returns.
Starting points and ending points matter when you calculate CAGR data. Also, market returns at the end and start data point depends on valuations, sentiment, liquidity, and flows.
However, over long periods this smoothens out.
For instance, a quick look should tell readers that the last 5 years market returns and the difference between BSE-30 Sensex and BSE-500 Index returns seems to be a break from the long-term trend. One should expect these to revert to long-term averages.
This is why one should not be perturbed by global themes and mood swings. We have seen this ‘predictable’ trend play out over the last three decades and we would expect this to continue.
When the trend breaks: A historical view
However, there are times when we get on to question the assumption. There might be a break in trend, some shock to the system, a self-created crisis, a global boom or bust which can impact trend growth.
Some of it might be cyclical. Some can become structural.
And remember, we are talking about underlying growth. Not market returns.
India needs to care about structural underlying growth to keep the corporate and investment sentiment going.
Over the years, I have thought about structural changes in growth twice.
One was in 2007, when the consensus was India will grow at 9-10% sustainably. We looked at long-term trends and decided India will not be able to sustain it. Although, back then we increased the long-term average trend to 6.0%-6.5%.
The other time was in 2019-2020, before and after Covid. Trend nominal growth had fallen below 10% and we wondered if the 6.0% potential growth was under threat. Our summation then was that it was more due to consistent system shocks of demonetisation (2016), GST implementation, Real estate regulation (RERA) (2017), IL&FS led credit crisis (2018) along with a global commodity price slump which led to the slowdown.
The current crisis: Nominal growth below 10%
We now have a situation where nominal growth has yet again fallen at or below 10% for over a year.
| Quarterly % yoy | |||
| Date | Nominal GDP | Sensex Returns | Sensex 1 year Forward EPS |
| Dec-22 | 8.920763095 | 4.44 | 24.45 |
| Mar-23 | 8.913636085 | 0.72 | 19.37 |
| Jun-23 | 10.95046857 | 22.07 | 17.38 |
| Sep-23 | 12.11937676 | 12.89 | 15.63 |
| Dec-23 | 12.92067724 | 10.1 | 17.33 |
| Mar-24 | 12.04611084 | 22.9 | 14.94 |
| Jun-24 | 9.65476866 | 14.28 | 12.15 |
| Sep-24 | 8.28163366 | 27.05 | 16.08 |
| Dec-24 | 10.281984 | 19.13 | 12.62 |
| Mar-25 | 10.75960483 | 0.96 | 5.86 |
| Jun-25 | 8.819933601 | 10.13 | 4.45 |
| Sep-25 | 8.733352933 | -3.1 | 0.23 |
As the economy seems to have slowed, it is reflected in falling expectations of earnings growth. This has then resulted in market returns turning negative on a rolling 1 year basis as of September 2025.
This also explains the ~30% under performance of India against Emerging Markets which I wrote about in my previous insight piece.
One can argue that the low nominal growth is a function of low inflation. Both consumer and wholesale inflation have trended lower over the last one year. This has also perplexed many as real GDP growth has printed above 8% for the last two quarters, leading them to suggest “it doesn’t feel like 8% growth”
Markets and corporates function on nominal growth. The revenues, volume growth, market size and profitability are all measured in nominal terms (including inflation). Nominal Growth below 10% should be concerning.
This is because, in our simple India investing corollary which has held for many decades, investors expect double digit returns from Indian markets because Indian underlying growth is in double digits.
The worry in the minds of investors would be is this the pace of sustainable growth? If Inflation rises to long-term average of 4-5%, would that mean real GDP growth would fall to 5%? Should investors then reduce their return expectations
The math of sustainable growth
Our assessment of sustainable long-term growth comes from a simple formula.
India’s domestic savings ratio is ~30%. India ICOR (incremental capital to real output ratio) is about 5. So 30/5 = 6%; If India can access foreign capital and push the investment ratio to say 35%, the potential real rate of growth can rise to 7%.
This is why we estimate that the long-term sustainable real rate of GDP growth is 6.0%-6.5%.
In the last 10 years, global factors and domestic policy mix has ensured that inflation is running below its long-term average. Hence, we are consistently seeing nominal GDP hovering around the 10% level.
The real push for India is thus to increase savings and investment rates towards 35% and then improve efficiency to boost real output growth.
So, I think the current low nominal growth will get corrected a bit. However, we are yet to see persistent signs of savings and investments rates rising.
In my next column, I will look deeper into whether there are signs of near-term and structural growth trends, which will continue and support the simple case for investing in Indian equities.
Arvind Chari is a Chief Investment Strategist and has been with Quantum Advisors India group since 2004. Arvind has over 20 years of experience in long-term India investing across asset classes. Arvind is a thought leader and guides global investors on their India allocation.
This article is for educational and discussion purposes only and is not intended as an offer or solicitation for the purchase or sale of any investment in any jurisdiction. No advice is being offered nor recommendation given and any examples are purely for illustrative purposes. The views expressed contain information that has been derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness, or reliability of the information.
The views and opinions expressed in this article are my personal views and should not be construed of the Firm. There is no assurance or guarantee that the historical result is indicative of future results, and the future looking statements are inherently uncertain and cannot assure that the results or developments anticipated will be realized.
